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The United States Department of Justice has issued a statement confirming that it has arrested seven individuals connected to popular file-sharing site Megaupload and its various subsidiaries. The alleged criminals and two corporations named in the complaint are charged with generating more than $175 million in profits through racketeering, conspiracy to commit copyright infringement, conspiring to commit money laundering, and two substantial counts of copyright infringement. The individuals, including Megaupload founder Kim Schmitz, face up to 20 years in prison if convicted.

One might expect a file locker site to shield itself behind the DMCA’s “safe harbor” provision that protects websites from copyright infringement committed by their users so long as they comply with the copyright takedown notifications. According to the indictment, Megaupload was structured in a way that promoted the distribution of copyrighted material. (We have a PDF here, as the DoJ’s site is currently down.)

The indictment alleges that the site was structured to discourage the vast majority of its users from using Megaupload for long-term or personal storage by automatically deleting content that was not regularly downloaded. The conspirators further allegedly offered a rewards program that would provide users with financial incentives to upload popular content and drive web traffic to the site… The conspirators allegedly paid users whom they specifically knew uploaded infringing content and publicized their links…

The DoJ also alleges that the conspirators failed to terminate the accounts of known copyright infringers, “selectively complied” with orders to remove copyrighted content, and misrepresented whether content had actually been deleted by disabling particular identified links to a file rather than erasing the file itself. These allegations go far beyond the normal scope of copyright infringement lawsuits — such cases are nearly always civil rather than criminal.

Not all publicity is good publicity

Megaupload was in the news last month after UMG abused the DMCA to force YouTube to withdraw a music video praising the service that featured a number of prominent musicians. Megaupload came out the winner as far as the court of public opinion was concerned, but the federal indictment makes note of the websites 150 million registered users, 50 million daily visitors, and 4% share of Internet traffic — all of which were disclosed in the music video.

Furthermore, the site’s founder, Kim Schmitz (aka Kimble, Kim Dotcom, and Kim Tim Jim Vestor) isn’t likely to cut a sympathetic figure at trial. Schmitz was convicted of computer fraud and handling stolen goods in 1998 and of embezzlement and insider trading in 2003 (his pump-and-dump stock scam left two other companies bankrupt). In 2010, he attempted to buy a $30 million house in New Zealand, said to be one of the most expensive in the country.

This is not a man who understands the value of being small, and his personal history adds credence to the idea that the Feds aren’t blowing smoke on this own or acting on behalf of the entertainment industry. Not that such minutiae stopped Anonymous.

Mega $@#$-up

Less than two hours after the Feds announced they’d arrested Schmitz and taken MegaUpload offline, Anonymous retaliated by attacking riaa.org, universalmusic.com and justice.gov. All four sites are currently offline.

Anonymous “operative” Barret Brown told RT.com that ““It was in retaliation for Megaupload,” that “more is coming” and that this was part of an effort to “damage campaign raising abilities of remaining Democrats who support SOPA.”

Slow down, folks.

We’ve written quite a bit about SOPA here at ExtremeTech and I’ve made my own opinion clear: It’s a terribly written law. It’s also got nothing to do with the DoJ’s execution of this indictment. The decision in question was handed down on January 5. That means the case went before a grand jury for discussion and deliberation at some prior date.

Grand jury indictments don’t get handed out on the basis of a 30 minute PowerPoint presentation and the US doesn’t coordinate extensively with New Zealand law enforcement at the drop of a hat. This isn’t a knee-jerk retaliation for the SOPA protests. It’s possible that some of the Congressional debates were scheduled to coincide with the government’s arrests, but these are scarcely trumped up charges.

There’s a difference between putting unjust power in the hands of private actors and achieving millionaire status on the backs of artists and filmmakers who aren’t being paid for their work. There’s a difference between hauling individual citizens into court and charging them outrageous infringement fees and asking the law to properly protect your company from mass theft. All too often, the RIAA and MPAA have been on the wrong side of that line — but that doesn’t mean they’re on the wrong side of it today.

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Just to point out that he was renting the house in NZ as the Overseas Investment Office wouldn’t grant him the right to purchase the house due to his “character”.

Joel Hruska

Thanks, Rob. Updated.

http://twitter.com/dr00zilla droo

“It’s also got nothing to do with the DoJ’s execution of this indictment.” The fucking hell it doesn’t.

Joel Hruska

If this was a civil action — say, Universal dragging Megaupload into court — I’d be willing to say it was a coordinated effort. You don’t initiate a major grand jury investigation and international police action based on the voting timeline for a bill that wasn’t even known before Christmas.

David King

Yeah I would agree, but I still think the MPAA and RIAA are responsible for this investigation in the first place.. then again, the DoJ might just go for any viable target with enough money. Just one person’s tin-foil hat theory.

David King

Yeah I would agree, but I still think the MPAA and RIAA are responsible for this investigation in the first place.. then again, the DoJ might just go for any viable target with enough money. Just one person’s tin-foil hat theory.

Nicolas Rodrigue

Check the date again. January 5. It was clearly coordinated as a dick move following the anti-sopa protests.

Joel Hruska

I quote:

On or about June 24, 2010, members of the Mega Conspiracy were informed,pursuant to a criminal search warrant from the U.S. District Court for the Eastern District of Virginia, that thirty-nine infringing copies of copyrighted motion pictures were present on theirleased servers at Carpathia Hosting, a hosting company headquartered in the Eastern District of Virginia..As of November 18,2011, more than a year later, thirty-six of the thirty-nine infringing motion pictures were stillbeing stored on the servers controlled by the Mega Conspiracy

Right. Clearly coordinated in response to SOPA. So amazingly coordinated, in fact, that they managed to line it all up before COICA (the failed bill SOPA was based on) had even been *introduced.*

Anonymous

I’m so happy that the US has such a short reach in terms of populous. Seems Big Money will have to spread itself further to get ‘total control’ and by then it will accept global cultures.

No more Big Bang for me – I wish I cared/watched it.

http://twitter.com/Blwarrington Blake Warrington

I believe that it is stated that it is our right and duty to oust the government of un-justice people. This is the only website they can shutdown because they had the media on their servers unlike torrents which are p2p (peer 2 peer). They can’t shutdown torrent sites because they technically have no illegal data on them. We are built upon these three rights: Life, Liberty, and pursuit of happiness… Upon these are the rights of freedom of speech. Back to my point. Do you see any movie stars or actors homeless living on the streets? NO! They have mansions that they live in!!!!! They are crying that there are losing money when most the population has somewhat of a struggle to stay living semi-nicely.

http://profile.yahoo.com/QDPVWLAGLETPZOGAMCMC2WM6YA Jackson

The money they use to buy those houses is theirs. They earned it, and they can buy as many strippers and houses as they want. But those big stars aren’t the ones hurt by illegal downloading– it’s the indie bands, the small time authors. I’m an author, and my first book could easily go out of print any day now because it appears demand is low. It was illegally downloaded THOUSANDS of times last year. Demand isn’t low at all. Even if just ONE of those people would have bought my book, it would have made a difference– and it would have been one more dollar in my non-rich, non-actor, non-movie star pocket, a dollar that I earned fair and square. MegaUpload, Torrent sites, RapidShare– what they promote is stealing. It’s wrong, plain and simple.

The problem is that cloud storage/file sharing sites have legitimate, non-infringing use too. For example, a small indie software developer might prefer to host their files on such a site rather than maintain their own download repository on their regular web hosting service.

On the other hand, MegaUpload’s techniques of driving traffic to their site do have the effect of encouraging and enabling copyright infringement. If the charge is valid that they did not remove files in response to a DMCA takedown notice, they lose their safe harbor and this type of behavior can be used as evidence of the conspiracy.

Anonymous

What is the name of your book Jackson? I would like to do a little research in to your claim.

Joel Hruska

Right. Clearly we should only enforce laws when the people who are being hurt are poor. Because that’s fair and just.

http://trochevs.myopenid.com/ SAL-e

I have a question!
If DOJ manage to stop this pirate, I mean pirate with big money and resources to defend himself, why DOJ, MPAA and RIAA need a new laws like SOPA and PIPA?!

This shows that SOPA is not about stopping the piracy, but ratter for building “The Great Firewall of USA”.

David Manning

I was thinking the same thing man!!!!!!1

David Manning

I was thinking the same thing man!!!!!!1

http://twitter.com/clairejvannette Claire J. Vannette

Because these idiots were stupid enough to have servers in the U.S. Other pirate sites are not that stupid.

http://twitter.com/clairejvannette Claire J. Vannette

Because these idiots were stupid enough to have servers in the U.S. Other pirate sites are not that stupid.

http://twitter.com/clairejvannette Claire J. Vannette

Because these idiots were stupid enough to have servers in the U.S. Other pirate sites are not that stupid.

http://twitter.com/clairejvannette Claire J. Vannette

Because these idiots were stupid enough to have servers in the U.S. Other pirate sites are not that stupid.

http://twitter.com/clairejvannette Claire J. Vannette

Thanks for this analysis, Joel. You inspired me to read the entire indictment. If this stuff is genuine, “safe harbor” is out the window.

Joel Hruska

I’m not sure what you mean — are you saying MU’s claim to be protected under safe harbor is out the window? That’s definitely my own take. The faux link disabling and refusal to remove copyrighted material is pretty open-and-shut.

http://twitter.com/clairejvannette Claire J. Vannette

Yes, that’s what I meant, sorry. :)

http://twitter.com/clairejvannette Claire J. Vannette

Thanks for this analysis, Joel. You inspired me to read the entire indictment. If this stuff is genuine, “safe harbor” is out the window.

That leaves one question for me:
Is there any chance that the people, who uploaded THEIR data LEGALLY to Megaupload, get their files back from the USA.
After all Megaupload was still a cloud service where you could upload YOUR OWN files and those are lost now.
So if it’s not OK to steal content from others, why is it OK for the USA to steal those uploads?

http://www.mrseb.co.uk Sebastian Anthony

Yep, I’m not sure. I suspect there’s no recourse for such people — which is probably highly unfair, but who knows if it’s OK in the eyes of the law.

Anonymous

I have question about all this… Megaupload was Hong-Kong based, so what gives the right to the FBI to shut it down?

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